Market madness, Blockchain scalability & more - The Daily Gwei Refuel #127 - Ethereum Updates

Transcript

hello everyone and welcome to another episode of the daily gray review where recap the latest news in the ethereum ecosystem i'm your host anthony cesano and today's the 24th of may 2021 all right everyone uh you all had a good weekend right we all uh we all got got rich right no no no jokes aside here it was a pretty brutal weekend in the markets of course i mean i have the chart up here you know we've come back up a little bit from the lows here but it's been a pretty i mean not just the last weekend but i guess the last two weeks have been you know quiet quite bad in the markets right we topped out at 4 400 on eath and we went all the way down to what is it 17 23 or something that's the the local low here now you know there's

tons of kind of speculation on on twitter about like why did this happen you know why do we fall so hard uh you know is it this like the end of the bull market and all this sort of stuff and i went over a lot of that last week or or kind of on last week's refuels i think what i did want to focus on today is two main things really it's the news that came out over the weekend around china and bitcoin and bitcoin mining and things like that and also this meme from from mooney here so before i get into the meme i do want to talk about what happened with uh with china and the price action there so there's conflicting reports i haven't seen anything definitive yet and i've seen a bunch of threads a bunch of news articles you know tons of stuff going on

about this but from what from my reading essentially what happened was china or at least some high-ranking officials in the chinese government announced that they were going to ban coal mining for btc so renewable only um bitcoin mining and also cracking down on centralized exchanges and trading of crypto um and you know basically uh regulating that much more heavily now you know we've all heard the fud um in the past like china bans bitcoin all this sort of stuff right i think this time it's a little bit more than far there's a little bit more um substance to it and of course a lot of people are now i guess like putting the the price drop uh you know attributing the price drop to this news the funny thing to me is that last week before this news came out people were

attributing it to elon musk's tweets right and i spoke about this last week i said that there's so many variables in markets that pinpoint you know pinning any kind of movement on just one event is rarely the right approach i think that in in i guess like maybe in recent memory uh i think the covert dump is the only news event or only kind of like thing that happened that trigger that you could directly tie to a market movement because it was a global risk off event it wasn't just crypto it was every asset class basically getting sold off going into cash and then we have like a really really really strong recovery after that particularly in stocks crypto took a bit longer but stocks had a really strong recovery like pretty quickly after that and then obviously crypto you know over

the course of a year had a very very strong recovery from those lows so that event i would say is one of the only ones that i can think of and that's because it was such a large event if we look at things in like the crypto markets and look at like the kind of local things that have got to do with crypto i explained this last week bitcoin had looked weak had looked very weak on the markets for about think two to three months the inflow seemed to have stopped all the money was flowing into you know out of bitcoin and into just total crap right there were so many scams pumping there was so much other crap pumping so you know this kind of news that came out um and all the stuff that came out there wasn't just these china bands you

know bitcoin stuff there wasn't just the elon musk stuff there was plenty of stuff that came out those i don't think those were the cause of the of the drops they may have uh attributed to the acceleration of it but i think that we were going down anyway just based on the fact that the market in general just looked weak one especially for bitcoin like ether is looking strong but but i think bitcoin in particular you know so much of the market is tied to bitcoin then that if bitcoin dumps as hard as it did like everything's just going to follow it um i don't think it's going to change anytime soon either unfortunately as much as i would love it to it it's definitely not going to be something that decouples you know uh quick you know as quickly as we would like here

um but in saying that the kind of thought experiment i like to go through is if we were in a bear market say it was 2019 the eighth price was like you know or say like the bitcoin price i can't remember what the bitcoin price was i don't really pay much attention to that but the eighth price was like 150 dollars in 2019 which it stayed out for like a lot of 2019 and this news came out do you think eth would have nuked 60 on this news like it did now no i don't believe so at all i think maybe it could have led to maybe a small sell-off or some you know very very short-term reactionary stuff but you have to put in context what stage of the market that we're in we were in a very frothy market eth went up like you know

pretty quickly right i mean you can see on the chart here basically from i guess like the beginning of april what were at at the beginning of april we were at about i guess like 1900 and we went more than double to like 4k in in about six weeks right so that's like a pretty pretty big price rise for eighth considering how big is an asset now but in that time we had like all the speculation around the dog coins we had all the speculation around the the scams all the the rug pools the tons of money just flowing in and in and in and like just going into scams and like really shitty old dead projects dinosaur coins as i've called them and the market was extremely frothy so from that context right the the the kind of like a market was already in my opinion

going to go down regardless it wanted to go down because it was so frothy and so many people had made so much money that they wanted to cash out and there wasn't enough liquidity to cover everyone cashing out at the same time so we dropped really quickly which brings me to my second thing that i wanted to talk about which i wrote about in the daily grade newsletter today should definitely go check that out it's got a it's got much more detail but i'll give an explanation here so this meme from mooney and for those listening on the podcast i'll just explain what the meme is it's a picture of an elephant standing with one leg on a beach ball like a little you know beach i guess like uh a ball that you see like uh you probably know what i'm talking about it's kind of hard to describe but

you know a beach ball that's really tiny and on the on the elephant it's it's labeled everyone's paper gained and then the beach ball is cut is labeled liquidity available to cover it now this might not be self-explanatory if you if you're not deep into the market you're not a trader or anything like i'm not a trader but this stuff kind of just you know interests me so i kind of tend to learn about it but essentially what this means is that when you look at your portfolio and you see okay i can sell x amount of coins for you know this price right you could sell a thousand eight four uh maybe not either maybe the best example but let's just use that as an example for now you could sell like a thousand eight for x amount of dollars at that y price that's assuming

that the amount of liquidity or the amount of buy pressure exists at that price to to fill your order right so and and and this is actually really and this is why a lot of the the smaller market cap coins can fall so fast because they have much less liquidity than something like eth but essentially what happens is that it reaches a tipping point where everyone says okay well i've made so much money and i want to start kind of like de-risking here i want to start cashing out some but the thing is if enough people kind of say that at the same time there's barely any liquidity available to cover all of that cell pressure which means that the prices start to drop really rapidly now when you have a very uh heavy derivative driven market which is what crypto is where a lot of people take on

leverage it's very easy to access leverage what ends up happening is that when the prices drop um you know uh drop rapidly people get liquidated now when people get liquidated the assets have to be sold off which just pushes the prices down further which leads to more liquidations which is what some people will call cascading liquidations and that's when you start to see those really really violent price swings um you know to the downside and a lot of fear you know kind of um groups people they panic sell and it just you know it kind of becomes a snowball effect and that's why you see in the chart here just how brutal it can be this is the four hour chart if i if i switch to the weekly here you can see just how brutal last week's kind of weekly candle was here like in the context of everything else

you know the weekly here went down you know just just this one week so starting uh the 17th of may to the i think 24th each went down 51 so over half of its value was just erased in one week and the only other time in recent memory that that happened was in one week was the covert dump right in march of 2020 so you can see relatively just how bad that is this didn't even happen like i think after the last bull market like you you have to kind of i guess like i i guess like i'm measuring down to the week but like even down to the week 45 so if the blow off top from the 2017 bull market this didn't even happen so you can see just the panic that ensued here from people just like selling it down and it accelerates

because more people get liquidated more people panic sell more uh you know less liquidity there is to fill all of these sales and then you have this kind of like rapid drop in price and then eventually it reaches a a bottom where people kind of you know have dry powder and they're like wow the price is like super super cheap right now i'm gonna just like buy it up here and then for enough people do that obviously the trend reverses you know sellers run out of ammo too because you eventually reach an equilibrium where there's you know the sellers have run out of tokens like not literally run out of tokens but there's like way less cell pressure because everyone's already sold and now people you know there's always a buyer right doesn't me it doesn't matter if the price is dropping if you can sell

into a market you've sold to someone else they've bought your coin that means that you have dry powder now whether that's in a stable coin or in or an ether or btc or whatever and you want to put that back into other assets you know eighth wasn't hasn't bounced nearly as strong as some of the other ones that foul stronger like some of these assets fell like 80 or 70 and they've bounced really hard because they've got less liquidity at the end of the day so they'll they can go up you know very fast and go down very fast and that's exactly what this meme kind of like encapsulates is that just because you know the market cap of eighth is say a half a trillion dollars doesn't mean there's half a trillion dollars of uh of by pressure waiting for um you know to buy eight at

four thousand four hundred dollars for example that's never the case it's never going to be the case it's not how markets work at all and the easiest way to look at this is actually if you go to coingecko's asset pages and go to the markets tab they'll have a plus or minus two percent and then i'll have like a number underneath that so for example the plus or minus two percent i was looking at this before for uni on bitfinex and i use this example in my newsletter it's 150 uh sorry 1.5 million dollars uh so if you were to sell 1.5 million dollars just market salary on bitfinex worth of uni you would impact the price by two percent so you wouldn't get you know the current price of uni times your amount of tokens you'd get the current price of uni times your amount

of tokens minus two percent because you would be taking a two percent um slippage impact or price impact to sell all in one go now obviously you know you can you can tell what happens when you start selling more than 1.5 million if if you sell like five million then you're going to have more than two percent price impact and it's not just you selling it's like everyone's selling if they if they're selling so and then obviously it cascades down especially with leverage and liquidated positions and you can see what i'm talking about here this this is exactly what played out in the markets over the last few days this is exactly why crypto is so volatile and it just and we all thought it would be less volatile the more mature the asset class gets but i actually don't consider the asset class to be getting more mature

if we're just introducing more leverage into the system if the market price of the asset is driven by the derivatives market that is if there's more um you know leverage kind of going on there's more futures trading there's more options trading going on than there is of the underlying spot market um you know the normal kind of markets that you and i um you know a lot of you and i will um will kind of play in if the derivatives market is driving it then it's going to drive it in both directions and it's actually going to be more violent on the way down because of the fact that that liquidity can dry up really quickly and peop and greed is more powerful than fear on the way up and fear is more powerful uh way more powerful on the way down so i hope that it kind of explains to you

like i guess like why we see these violent swings in crypto and i've talked about this in the past but i think particularly over the last few days this just shows like we have so much leverage in the system right now and i don't think it's going away because these exchanges that offer this leverage are unregulated they're the binances of the world the ftx's of the world right yes they buy us customers but that doesn't mean there's tons of people outside the us that still use these exchanges um and this and there's you know there's ways around that of course if you're a us citizen things like that um i'm not sure if binance still offers this but they they do offer like no kyc for people uh for with uh with a two btc withdrawal limit so you can still withdraw like 80k um or if bts is at 40. i don't know

what current price of btc is but say it's 40k for now um you could withdraw 80k a day with no kyc and that's like you know for a normal retail trader that's a lot of money and you can just leverage with that as well so taking all that into account then multiplying it by potentially hundreds of thousands of people who are doing this leveraged trading you have a ton of leverage uh or a derivative kind of trading going on in the markets which means you have a derivative-led market which is always going to lead to volatility here don't know if this is going to change i don't think so these unregulated exchanges seem to be very resilient to any sorts of um regulation not that i invite regulation into this ecosystem i'm not saying that i want this and this is exactly what you what's going to happen in a completely

free financial system um but i think in general i just personally had hoped that we had gotten more mature here but i think as time goes on these swings are just going to become more and more violent if derivatives keep driving this market but hopefully i'm proven wrong uh but anyway i think i'm going to live at that for now it seems that we've bounced up a little bit here it's always scary with these bouncers because you never know if they're actually going to sustain themselves or if it's like what's called a dead cat where it'll bounce and then immediately fall back down because everyone's just waiting to sell uh you know people say oh there's gonna be a relief bounce selling to that well if everyone sells into the relief bounce and there's no there ain't gonna be no bounce there's just gonna be selling

pressure into the what little by pressure there is so we'll see what happens obviously long-term bullish that hasn't changed like nothing has changed with regards to ethereum and its fundamental value cr but in terms of short term i know that if you're someone like me who spends a lot of time in this ecosystem and if you're maybe newer than than me this sort of stuff can scare you and honestly like i don't know anyone who expected the price to drop uh nearly this this fast uh i think everyone was blindsided by this i think um you know i i've said this before on the refuel but my running theory is that because of this kind of like derivative derivative kind of led uh price action we're just going to have faster bull and bear cycles now when we go up faster we drop faster and we just clear this out we don't have

like for example i don't expect there to be another two year bear market because we're just going to do the two years worth of bear market price action maybe in like you know a few days something like it seems like or a few weeks at this stage but we'll see if that's invalidated or not um i'm still bullish i don't think we're going into a long-term bear market yeah it may take some time maybe even some months to repair the damage that's done here free to get back to its all-time high i don't know we'll see how it goes this is uncharted territory the market structure here and the market kind of volatility is definitely very different to what it was you know previously i think a lot of people uh you know there's a lot of newer people in this system as well so

yeah we'll see how that goes i'll leave it at that for the markets uh kind of stuff today definitely read the uh today's uh newsletter if you want more details on what i was talking about here with regards to mooney's tweet so rick dudley had an interesting uh kind of tweet with regards to the side chains versus l2 debate uh which i which i actually really uh kind of like agree with here so basically what he said was he he said we should stop talking about side chains there are l2s and l1 with trusted bridges to other l1 if we have l1 l2 language there is no reason to even talk about side chains anymore i think this is a really great way of framing it i'm actually really um uh really uh excited about this framing because of the fact that

there are so so many um i guess like narratives out there of what constitutes or definitions of what constitutes a side chain what constitutes a layer one what's on our layer two blah blah what's a bridge all this sort of stuff so just boiling it down to we have you know layer ones like ethereum we have layer ones like bitcoin they can bridge to each other and the bridge is essentially the thing that we should be focusing on with regards to the security of assets so let's use a very obvious example here of polygon for example right polygon is typically referred to as a side chain because it does not inherit its security from ethereum but if we're using this new terminology or i mean this existing terminology if we don't use the word side chain

how else can we subscribe uh describe polygon or the polygon pos chain we can describe it as another layer one right with a bridge to ethereum so it's it's essentially like any other layer one except in my view polygon is is friendly to ethereum so that's why they've been embraced by the ethereum community but the central point of failure is still that bridge for those of you who don't know the bridge from ethereum to polygon is secured by um the the polygon post validator set but it has a multisig on it so a five of eight multisig where five of the signers could get together and theoretically they could steal all the funds inside the bridge right which is there's billions of dollars in there because every time you want to bridge your assets over

from ethereum to polygon or the polygon pos chain you need to go through that bridge and lock your assets on there and mince you those assets on the pos chain so technically um those assets could be stolen from you if the bridge operators wanted to do this now of course you know uh i don't think they're going to do this whatever but you're still trusting this these kind of like you know multi-stick signs at the end of the day and you know polygon has put out a tweet around why this is the case before i'm not going to go into it now i've spoken about it before but that's what we should be focusing on and i totally agree with rick here if there's a if if if your chain is typically referred to as a side chain to ethereum well then it's just an existing you know

it's just another layer one with a bridge so in all honesty you can say okay well you know the the chain itself is secured by its validator set and that's true but whatever assets are not native to the chain whatever assets that were bridged over are secured by the bridge they're not secured by the the the validator set of the new chain and they're not even secured by ethereum anymore right if you put assets in that smart contract uh those assets are not secured i mean technically they are secured by the ethereum network right but the thing is you always have to look at like the the the central point of failure which is that multisig anyway um so anyway i think kind of like i'm going to be using this terminology from now on i think that the term sidechain doesn't

really mean anything to anyone layer 2 as a term has also lost a lot of its meanings but i still use layer two to refer to a i guess like solution that sits on top of ethereum that actually inherits ethereum security so something like a roll-up where the security of the roll-up comes directly from ethereum's miners or ethereum stakers right depending on what stage we're at in terms of ethereum like ethereum's lifecycle here so yeah really great tweet from ricky i think it really kind of like boils down the debate to very simple terms and this is what i'm going to be using well this is the terminology i'm going to be using going forward so speaking of uh scalability solutions here all layer twos and whatnot uh chris from maker dao had a really

great thread here where he basically broke down the differences between optimism and arbitrary the two leading optimistic roll-up solutions now i've spoken about these two a lot in the past you know a lot about them already so i'm not going to go into both of them but essentially this thread will break down the positives uh negatives drawbacks whatever for both of these solutions what they're good at what they're not good at and i think i don't know if he i think yeah he says he's cheering for both projects here he's not really picking a winner it's way too early to pick a winner here and again i don't think there's going to be a winner takes all kind of thing i believe that these solutions will basically exist you know side by side and grow side by side but if you're interested in the differences between

them um you know definitely go check out this thread from chris it'll be linked in the youtube description below so aztec uh one of my favorite projects in this space that isn't talked about enough actually put out a blog post uh basically uh titled bringing privacy to d5 which which describes essentially why they're building kind of like aztec 4d5 and what aztec's private rollup will be able to do for d5 the three main things here is that it will be able to do well the two main things is that it'll be able to bring privacy to ethereum which is obviously solely needed especially within d5 and scalability of course because it's a roll-up but there's also uh trade-offs that are included here as well and then they give kind of like a glimpse ahead so i just reading this blog post it's a

short read it's only three minute read here they're saying they're going to bring out more details in the coming weeks about what they're actually building here and and what apps can be used and how everyone can use it so i'm looking forward to that as well but definitely go give this blog post a read so speaking of blog posts vitalik put out a really great one today called the limits to blockchain scalability where he basically breaks down um you know how blockchain scale at layer one not layer two but how they can scale layer one the the limits to that scalability as he implies in the title here the drawbacks the the positives what we can do what we can't do you know how far we can push player one scalability while still um retaining i guess kind of like a decentralized blockchain now you know a lot of this alludes to

kind of like small block culture if any of you know about like the bitcoin kind of like fork wars between bitcoin and bitcoin cash and what that was about that was essentially boiled down to small blocks versus big blocks so obviously bitcoin has small blocks it can only process uh you know a small number of transactions a second um and you know it has a 10 minute block train at a time or a target of 10 minutes per block ethereum also has a relatively small block size it can only trend uh only kind of like two on average 15 transactions per second it's a bit different because of the gas limit um but yeah on average it's about 15 transactions per second here now the way to scale that up and the way that ethereum is kind of um i guess like uh going the path of theorems going down is

sharding and there's two main kind of like families of sharding here called data availability sharding which is which can be used to boost layer 2 scalability and then execution sharing which may or may not be coming sometime in the future which basically allows layer 1 scalability to go you know i guess like 64 x if there's 64 shards for example so essentially what this blog post boils down to is the vitalik believes in the uh i guess like it doesn't believe in a small blocker doesn't believe in big blocker he's a medium-sized blocker so somewhere in between which has actually been my view for quite a while as well where i figured that small blocks are too restrictive large blocks are way too uh you know uh you know way too um ambitious

and leads to a lot of uh you know negative externalities that we don't want and at least to centralization so can we find somewhere in the middle with medium blocks and i think we can i think that we can do that with sharding i think we can do that with statelessness and i think we can do that with improving how the clients handle uh the ethereum blockchain itself um and things like that and obviously you know we're moving to staking but that's not going to play a big part in the scalability um you know kind of i guess arena there but anyway definitely recommend reading this this blog post vitalik always does a great job of explaining these things in very simple terms and he doesn't uh you know it doesn't go into too much technical stuff here which i thought was really cool as well so

yeah if you want to understand kind of like why ethereum hasn't just like scaled like these other blockchains um claim that they'll be able to do it really boils down to to that you know keeping the decentralization within ethereum and not wanting to centralize so yeah recommend giving this blog post a read so another thing that happened with china actually over the last few days was that they began to start cracking down on defy apps so a lot of you will know that china's internet is controlled by the great firewall of um of china where they block a lot of different websites they started blocking default websites so many of the popular ones were just outright blocked you couldn't access them so in i guess like in return uh the yearn finance team deployed uh a mirror to yeon.finance which uh runs on ipfs so

it is not running on you know the normal kind of like i guess centralized web servers here it is running on on ipfs which is really cool and i think this actually speaks to the fact that we need more decentralized front ends within uh d5 we need them all to be on ifs we need them all to be everywhere on on our wave on falcom whenever you can put them we need them to be because if not it's just very easy for governments to block defy frontends which which blocks out a lot of users yes you can directly access the smart contracts yourself if you want to but it's very technical it can lead to user error very easily and it can lead to users losing their funds very easily so you definitely want to be able to have um a variety of front-ends both

decentralized and centralized uh that make d5 extremely resilient if they've been deployed so kudos to the yearn team for for being so quick on this i i hope other teams follow suit here so ben has his latest what's new in eth2 update uh that he published over the weekend there is a lot in this update it's very meaty there it's covering altair the first e3 upgrade rainism the uh the uh i guess like eth1 to each to merge test net uh uh effort that's currently underway uh details on the merge updates on the merge staking usual explainers and research uh if you haven't checked out this latest update i highly recommend doing so and i also highly recommend subscribing at eth2.news uh you can subscribe to the rss feed

because this is and uh this has been and remains to be the best resource for keeping up with eth2 it's where all i get all of my a3 information so i highly recommend going and subscribing here so just a quick note here a project that i'm heavily involved in as an advisor and investor here called m stable which a lot of you are probably aware of is currently hiring for a bunch of different roles now they're hiring for marketing business development they're hiring solidity developers and a lord of the discord or you know in other words a community manager if you think you can fit any of these roles i highly recommend getting in touch with james here so you can reach out to him on twitter i'll link this in the youtube description you can go check it out um i can attest to this team being awesome

to work with they're building really cool products i love working with them they're all really laid-back people uh and they get stuff done they ship as well so if you're looking to break into crypto i couldn't think of a better team to kind of um go with here and there's a variety of roles here as well right marketing bd solidity development um and community management i feel like a lot of people watching this and listening to this fall into those categories so if this is something you're interested in definitely give james a shout here uh his dms are open so bloomberg is finally publishing uh good crypto media coverage here so in this piece they are titled ethereum closes in on long sword fix to cut energy use over 99 percent uh is where is a piece in which they

describe ethereum's move to proof of stake aka the merge now this has been a very hot topic lately obviously because of the uh i guess like uh discussions around uh the energy use of proof of work and all that sort of stuff and obviously ethereum is is hitting back the human community sitting back saying well yes ethereum is bad right now it uses this energy but later on in the year hopefully or maybe early next year we will have this merge done where we get rid of proof of work and we move to a proof of stake system like a full proof of stake system and we do in fact cut energy use by over 99 here now i've seen a lot of people say that they think this is too good to be true it's not we really will cut it down by this much and i've explained why in the

past is because staking is just fundamentally different you are essentially swapping the miners for stakers like for for staking coins for example right as your security of the network and you have software that you run on your on your pc but you don't require this software to be running at 100 capacity um you know in some warehouse chewing up all this electricity to verify or validate the network so it is true now uh you can read this piece if you're not paywall if you have a subscription i think it's behind a paywall i can't read it unfortunately but yeah you can definitely check it out i'll link it in the youtube description i highly recommend going and checking it out because it's just always good to support i guess mainstream coverage of crypto that's actually good coverage

so santiago shared this snippet from goldman sachs global macro research report here and basically the snippet that he shared is a full screenshot i don't read the whole thing out but the interesting segment is is this and i quote ether beats bitcoin as a store of value the ethereum ecosystem provides developers a way to create new apps most of default apps are built on ethereum the great number of transactions in ether versus bitcoins reflects this dominance um and then he goes on to say a major argument in favor of bitcoin as a store of value as its limited supply but demand not scarcity drives the success of stores of value now this is something that i've argued for a very long time just because you have a scarce asset doesn't mean that people are going to you know be no doesn't mean there's going to be

demand for it right and we've seen this play out with the nft space actually where there's a lot of nfts you could say are scarce because they're one of ones or one of tens or whatever but if no one wants them then that scarcity doesn't mean anything at the end of the day like i can i've got plenty of scarce things around my house that are really sentimental you know really have cinnamon of value to me but i couldn't sell it for anything could probably like uh you know sell it for something at you know a trash and treasure place something very little probably like you know a few dollars or something like that but there's no way that would ever be considered a store of value or people would ever pay me a lot of money for that um whereas i think that the ethereum

economy and the way um the the ethereum kind of network drives demand for ether as an asset which i've gone over you know plenty of times on the refill before is what's going to make eath a better sort of value than bitcoin in the long run i actually think it's already better but of course the market doesn't agree with that until eth is worth more than bitcoin which it will be but we have to wait until that happens for more people to clue into this but all the value drivers of eth are just much better than bitcoin i think that i mean i saw a tweet the other day that bitcoin gets its value from being like being a faith-based asset and it was there was push back on that saying well no it's not faith-based you know you know the security of bitcoin is real

people are using bitcoin uh bitcoin is used as kind of like a hedge against monetary inflation all this sort of stuff and that's fine i get that but so is eth i truly do believe it fits that exact same role and so much more so i won't go on about this anymore here because i've spoken about this plenty of times on the refuel but it's good to see kind of i guess like tradfi like goldman sachs recognizing this not that i think that we should be kind of like vying for their approval on these sorts of things but they have lots of reach a lot of people listen to them a lot of old money listens to them so for them to be saying this is very positive for the ecosystem overall and i think it's just another signal to use in the adoption cycle of the crypto

asset class as a whole and another kind of very positive piece of i guess literature that was published that santiago also shared here was a piece or a research paper called defy beyond the hype the emerging world of decentralized finance which was published by uh wharton which is a very prestigious university in pennsylvania here in the us this report is is pretty detailed it's about a 20-page report and it goes through essentially you know what defy is how it works what the the value prop is all that good stuff here but again this is just another kind of thing that's been published by the old world that is kind of i guess signaling that ethereum and d5 are the future right and we all know it's the future but it's good to get validation on this

sort of stuff from outside of the crypto ecosystem but yeah i'll link this in the youtube description you can go check this out for yourself uh because the final thing i wanted to get to is actually a question in the comments here that i promised that i would um i would answer on to today's refuel this question comes from naz and he says i keep hearing people say that once ethereum goes to proof of stake those who have staked will have more validating power and therefore this will make take a little bit away from ethereum's decentralization and this is this how staking validating and proof of stake works thank you again for your content help now i do want to remind people that i am doing an ama series every two weeks now in the discord channel i am actually taking questions prior to the ama

um you know happening so the next ama is going to happen this saturday the times will be the same times as i did it last time 11 p.m australian eastern standard time whatever that translates to you is um is what it is there and i record them and put them on youtube and everything like that so if you want to ask me questions and i can answer them all on that ama go there's an ama uh channel in the discord go ask them there and i'll answer all of those um this coming saturday but but for just for today i'll answer this question so essentially what this boils down to is is asking kind of like how do we measure measure decentralization of a blockchain now this is a pretty big question i've spoken about this in the past but it's not just based on the validators proof of stake

uh and as i just described before moves validation to uh you know away from kind of like miners so whether where miners validate um and produce blocks for the network to stake it so instead of mining machines it's coins right so the same argument that those who have the most staked uh you know have have i guess like more power over the network uh can be applied to those who have the most miners have more power over the network for example and and that the same thing goes for like mining pools and staking pools now the reason why these things are decentralized it goes far beyond just the amount of power any kind of central party has here there's also game theory at play now if you think about it if someone was able to amass 51 of the mining power and start doing 51 attacks

on bitcoin or ethereum what do you think would happen to the price of btc or eth most likely it would go down now you could say oh well someone could do this attack and then short it okay that's fine they could and and you know they might make money doing that but that's a very risky strategy and doing this in staking is actually much worse than doing this in mining in my with mining and i actually think this is a fatal flaw of proof of work in the long run you can basically keep 51 attacking as long as you're happy to pay the electricity costs to do so um whereas with staking if you do it and then the the kind of like i guess like the community catches you doing it or the chain catches you doing it you'll get slashed so you can only do it

once you only do this attack once and then your entire kind of like stake will be slashed aka it will be burned deleted from existence it will be gone you will no longer have it and you will no longer be able to attack the network because your validators will be ejected from the um the active validator set so from that perspective i actually believe proof of stake is more decentralized than proof of work regardless of what the of the centralization of validating power here and there's a post by vitalik called why proof of stake that i suggest you go on or you go all read um you can just google it it'll be the first result there that describes this in a much better way than i can but i hope that answers the core of the question here but on the second part is how we measure decentralization we

don't just measure it by the validating power we measure it by a lot of different things i think the strongest thing is the social layer of these systems do we have a social layout for ethereum where if something were to happen a bug an attack or whatever can we recover from that by using humans layer zero as i like to call it and i think ethereum can i think even bitcoin can because we have they have very strong social layers and what also plays into this is running full nodes like how many full nodes exist well for ethereum there's like over 5000 full nodes last time i checked i think there's over ten thousand but different size tracking in different ways same goes for bitcoin so can can those node runners and can the community come together to say well you know this attacker chain is actually

not the real chain the real chain is what my full node says it is and what everyone else's full node says it is and things like that so from that point of view there's that aspect of it there's also um decentralization of i guess like the market like what you know with the the exchanges the centralized exchanges aren't going to recognize the attacker's chain as the real chain as the main chain they're not going to honor the the deposits and withdrawals for that that for that they'll honor whatever the community decides so so at the end of the day the decentralization really comes down to the community and the social layer and how you encourage a good social layer is by allowing um people to to participate in the consensus of the system and also to participate as a full node runner this is why

um bitcoin is and and ethereums ethereums will always go on about well we can't just scale the blockchain up too fast on layer one because that would make it harder for people to run nodes which breaks down the social consensus layer which makes the chains way more prone to attack it's not just the centralization concerns it's the attack concerns as well it's the security concerns so from that point of view we should always be encouraging as many people to run a full node as possible which i hope that you're doing by the way it's not hard to do um but we but to do that we need to keep ethereum light we need to keep the blockchain as easy to sync as possible we need to encourage um people to do this we need to make it very easy for them to do that to run nodes and we need to keep the

social layer of all these systems very strong so that we can recover from from any sorts of attacks here so i hope that answers your question as i definitely i get this question a lot from people and i think really there's a really great blog post from balagi called quantifying decentralization he wrote this back in 2018 i believe or maybe 2017 and it goes over all these points and i think he he puts it the best way i think he definitely defines it in the best way possible um and hits it on the head but also the proof of stake blog post from vitalik so again um uh quantifying decentralization from balaji and why proof of stake from vitalik are two of the required kind of readings on this on this subject but i'll leave it at that for today because um

time is up but thank you everyone again for reading not reading sorry listening and watching uh today's refuel episode be sure to subscribe to the channel if you haven't yet give the video a thumbs up subscribe to the newsletter join the discord channel and i'll catch you all tomorrow thanks everyone